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Strange neighbours

Australia’s Foreign Policy White Paper makes some seemingly unremarkable points about Australia’s relationship with Indonesia: economic ties are growing; links are broadening through study and travel; and development aid cooperation is creating new connections.

But as one of the first joint efforts to put new flesh on these bones came to an end this week, there was uncertainty about the reality of these simple observations.

The fact the 4th Indonesia–Australia Dialogue occurred amid talk of a Chinese military base in Vanuatu only underlined the importance of expanding the bilateral relationship to deal with a changed regional outlook – in line with the White Paper strategy.

Indeed, in a demonstration of the scope for creative new engagement, even before the Vanuatu news there had been talk about Australia–Indonesia cooperation in the South Pacific. Mateship with Indonesia could help soften Australia’s bossy colonial image, and Indonesia could do with Australia’s advice on how to deal with Papuan separatist sympathies in Melanesia.

After four gatherings, this Dialogue is a good example of deep and frank points of engagement between these two so-called “strange neighbours”. The problem is, most participants know this does not necessarily reflect the general mood at home.

Looking at some of the Dialogue working groups’ recommendations to both governments on issues of economic diplomacy highlights challenges facing the White Paper’s deeper engagement strategy.

Two-way study and travel is growing, but the single most common complaint at the Dialogue was about how these links are curtailed by overly rigid visa rules. This mutual problem is the sort of impasse that could be solved by a deal.

Talking the talk

Despite declining numbers of Australians studying Indonesian, the country is a particularly popular destination under the New Colombo Plan. However, Indonesian labour rules make it hard for Australians to stay on in the country to complete an internship.

On the other side of the ledger, Indonesian businesspeople find it hard to get into Australia. And the bilateral trade deal negotiations have struggled to accommodate Indonesia’s idea that more of its people should be able to undertake work experience in Australia in return for granting Australian universities access to Indonesia.

The Dialogue backed an expanded youth visa to give substance to the White Paper’s rhetoric about establishing better people-to-people links and trialling programs in sectors where Australia has labour shortages.

The talk about a deeper relationship always looks hollow when the relatively thin trade and investment links between the two neighbours are considered. It was no different this time, except for a switch in focus from older, troubled business links, such as beef and resources, to newer sectors, such as tourism infrastructure and healthcare, which offer some hope for change.

Digital commerce may be a prospective area for new economic links because both countries, while having their own strengths in this sector, are seen as inward-looking in what is a truly global business arena. The Dialogue called for an Austrade landing pad to be established in Jakarta to facilitate more connections in the start-up space, and there are moves underway to link start-up hubs.

The latest speculation about large aid cuts in the May Budget made the White Paper’s celebration of development cooperation in Indonesia more like ancient history than future strategy at this Dialogue. The sense the aid program is under budget-cutting stress and needs sandbagging was only too clear.

Yet so many of the Dialogue ideas, from South Pacific cooperation to bringing villages into the e-commerce world, are premised on the existence of catalytic aid support.

Without a creative development program or deeper commercial connections, it is hard to see how plans for a closer security relationship won’t become victim to the same political vicissitudes that eventually killed off the 1996 bilateral security treaty.

Service please

With almost two billion workers, developing Asia is not only the workshop of the world but also potentially the world’s biggest dole queue if forecasts about technology destroying jobs are borne out.

Former International Monetary Fund chief economist Kenneth Rogoff lent weight to this sort of pessimism recently by arguing that China’s larger population undermined its ability to rival the US as a superpower because robots and artificial intelligence would be the dominant drivers of production in future.

But this week the Asian Development Bank has in effect rejected Rogoff’s thesis, citing research showing Asia is more than offsetting technology-induced job losses with new employment. The Asian Development Outlook 2018 says: “In 2005–2015, jobs created by rising domestic demand more than compensated for job losses to technological advances.”

Although there are plenty of caveats in this study about things such as the need for better skills development, retraining programs, and management of regional disparities, it does suggest that a transition from manufacturing to services-sector employment is well underway.

Learning from theft

One of the few areas where US President Donald Trump seems to win support for his threatened trade war with China is over Chinese misuse of US company intellectual property. Even Tom Friedman sympathises with Trump on this issue.

But without touching on the US–China tensions, the International Monetary Fund has issued a veiled warning about the productivity losses that would flow from excessive limits on the spread of intellectual property knowledge.

And the IMF says in the forthcoming World Economic Outlook that this is now a two-way street, with the rich world actually starting to benefit from the flow of knowledge back from erstwhile developing countries. In an interesting twist on the conventional wisdom that rich countries lose from technology leapfrogging in the developing world, the IMF argues:

With the growing contribution of China and Korea to the expansion of the technology frontier, one can expect positive spillovers from these countries to the traditional technology leaders. Alongside more traditional channels of gains from trade, the diffusion of knowledge and technology provides a powerful source of mutual benefits from globalisation.

Financial Times economist Martin Wolff makes some similar points about the US–China tensions here.